Technology Risks - Insurance Software Development Market
There is limited information available to the public on technology risks within the insurance software development market. One risk or challenge faced by operators within the insurance software development market (those working on developing life and annuity policy admin systems) relates to the use of outdated interface documents. Another risk is related to the need for significant rework on completed steps, which may arise when data migration audits get implemented. Insurance software developers also face risks related to the escalation of the cost of implementing or developing insurance software technology.
Risk: The Use of Outdated Interface Documents
- One of the technology risks faced within the insurance software development market by those developing software for life and annuity insurance companies is associated with using "outdated interface documents."
- "Outdated interface documents" lack or do not include existing updates on some vital triggers required for a policy admin system (PAS) to work accurately.
Why It Is a Risk
- There are several existing interface documents available for developers to utilize. These interface documents describe a list of triggers required to initiate data transfer (send data) from a policy admin system (PAS). There are also various copybooks and field lists used to build PAS systems that insurance software developers can download from multiple "legacy source application libraries."
- Various source application libraries are available for download (the study assumes that their publication dates may differ). Consequently, some copies may contain more updates. Developers operating in this market face the risk of using "outdated interface documents," except they take adequate caution when sourcing for and selecting the source application libraries to implement.
- Using outdated interface documents when developing insurance software products like PAS is a risk for the following reason. An outdated interface document does not contain a sufficient number of "interface exchange triggers" and variations. Consequently, this challenge (relative to insufficient triggers included during software development) may pop up during end-to-end testing.
How to Mitigate This Risk
- Developers can use cognitive tools to produce a report "by scanning data exchanges" for a specific period or leverage cognitive tools from existing data archives as well as data lakes (repositories).
Risk: The Need for Significant Rework on Completed Steps
- One of the technology risks in the insurance software development market encountered by companies developing software for the life and annuity insurance sector is the risk associated with the need for substantial rework on completed steps.
Why It Is a Risk
- The development stage of PAS insurance software requires that developers monitor a large set of data from "legacy" systems. This strategy aims at exposing the rules existing within a legacy PAS (a legacy system is an older or existing system or software used as a sample to develop a newer software/system). PAS legacy systems contain "traditional life insurance policies."
- Rules that get exposed during the monitoring process of large sets of data from "legacy" systems can supplement business rules (this is the conventional method). Alternatively, a developer may wish to review and utilize existing software documentation.
- Unfortunately, some notable exceptions, as well as variations, exist for some rules relevant to the software development stage. These exceptions "can remain hidden," and additional methods might be required to fix such exceptional rules.
- Some hidden "exceptions and variations," which are essential to the development state of a PAS system, can resurface "during data migration audits." Due to this challenge, the development stage of insurance software meant to cater to life and annuity insurance companies encounters a risk related to significant rework of previously implemented steps.
How to Mitigate This Risk
- Insurance software developers working on developing PAS software for life and annuity insurance companies can "scan the billing," lapse, and grace event-related data feeds for a period before developing vital stages of the PAS. They can scan this information using "cognitive technology tools."
Risk: Unintended Escalation of the Cost of Implementing the Technology and Turn Around Time of a Development
- One of the risks faced within the insurance software development market when developing software for life and annuity insurance companies is associated with an unplanned escalation in the cost of implementing the technology.
Why It Is a Risk
- A risk related to the escalation of the cost of developing software as well as risks associated with an unintended increase in turnaround time confronts developers operating within the life and annuity insurance market segment. These risks can come as a result of the need to rework a development stage or overhaul the entire ("end-to-end") development cycle.
- The risk associated with a hike in the cost of the technology can also arise from the use of outdated interface documents. This risk pops up during end-to-end testing of the development, as already discussed above.
- Delays encountered anywhere within the entire development process eventually escalate the costs and time of implementing a software technology for an insurance company.
How to Mitigate This Risk
- Developers can reduce turnaround times, and also avoid risks associated with "repeat" conversion costs when they automate many processes (stages) associated with software development projects.
- Developing an insurance product from scratch is not a viable option for software required to handle PAS conversions. Developers can adopt a pre-configured ecosystem to develop PAS components. The ecosystem includes a pre-built conversion accelerator and is an ideal approach for life and annuity "L&A insurers."
The research process included an investigation to uncover technology risks in the insurance software development market. This strategy examined scholarly and academic resources such as articles of the American Journal of Engineering Research (AJER). Insights from an AJER publication discussed ways to improve the efficiency of software development as well as the quality of software design. It also discussed the implementation of software (web) applications for insurance services and various risks faced in insurance. The study included additional research to uncover which of the discussed risks relate to life and annuity insurance companies. This strategy did not reveal any useful insight. None of the uncovered scholarly journals addressed risks within the insurance software development market (relative to life and annuity insurance companies). This study assumes that the area of interest is a niche area hence the limited resources. Alternatively, the information may exist but is not made public.
The study also investigated trade publications, including publications of the Center for Insurance Policy and Research (published by the National Association of Insurance Commissioners, NAIC). This step reviewed the technological risks faced by members of the association (those within the insurance software development market) or their contractors when developing software for life and annuity insurance companies. Some NAIC documents published insights on technology risks related to software such as malware and password risks. This strategy also investigated how malware and password risks affect the insurance software development market. None of the uncovered insights proved that any of the above risks confront operators within the insurance software development market or those developing software for life and annuity insurance companies. Articles published by NAIC on life insurance and annuities did not relate to challenges faced within the software development stage of any insurance product. The study assumes that NAIC may not be under any obligation to disclose such risks (challenges) to the public.
The study also included news and media resources such as Forbes. The research process also examined news and media publications to uncover technological risks within the insurance software development market (specific to life and annuity insurance companies). Insights revealed that the development of some smart contract tools (software tools) for the insurance market are leveraging blockchain to transform the Insurance industry. Another investigation attempted to uncover any technological risks associated with the development of smart contract tools (smart contract software) for life and annuity insurance companies. Such details were not made public. The article discussed some risks existing in the insurance sector, but they were not related to software development. Research reveals that no news media article has publicly addressed the niche topic (technology risks within the insurance software development market) relative to life and annuity insurance companies.
Additional research included the websites of companies (such as Cognizant) designing and developing insurance software for life and annuity insurance companies. This strategy examined some technological risks these companies report for the software development market when they build (develop) software products and solutions for life and annuity insurance companies. Cognizant (a United States-based company) disclosed some risks that come up when designing life and annuity policy admin systems (PAS). The company also published how to de-risk (eliminate) these risks. Policy admin systems (PAS) are developed software solutions for the insurance industry and are known as policy admin software.
Due to the limited number of articles or publications that address this niche topic, the study includes an update with useful findings or insights obtained from a limited number of insurance software development companies (mainly Cognizant). All insights highlighted in the study base on observed risks within the insurance software development market serving life and annuity insurance companies.